The Federal Communications Commission (FCC) conducts license auctions for the wireless spectrum. In essence, the FCC auctions the rights to transmit signals over specific electromagnetic wavelengths. Companies or individuals that utilize the wireless spectrum, such as wireless telephone companies, bid on licenses for parts of the spectrum. The licenses become the property of the highest bidder.
An issue that arises during a spectrum auction is how to determine how much the spectrum is actually worth to a bidding company. If a company does not know the long-term value of the spectrum for their particular business, then they might overbid and pay more than the licenses are actually worth. Conversely, if the company does not know the long-term value of the spectrum, they might underbid, lose the licenses to another company, and lack the spectrum needed to expand their business.